Myer sought 'merger of equals' with DJs

By
Nabila Ahmed, Sue Mitchell and James Chessell

Department store chain Myer approached upmarket rival David Jones about a $3 billion scrip merger just days before two David Jones directors bought shares in the company late last year, The Australian Financial Review has reported.

Myer sought 'merger of equals' with DJs

Myer sought a 'merger of equals' with rival David Jones in October. Photo: Angela Wylie

Department store chain Myer approached upmarket rival David Jones about a $3 billion scrip merger just days before two David Jones directors bought shares in the company late last year, The Australian Financial Review has reported.

It is believed Myer, advised by investment bank Goldman Sachs and consulting group Bain, made a full proposal for a “merger of equals” in late October.

David Jones chairman Peter Mason is believed to have received the offer, including a letter from his Myer counterpart Paul McClintock, on October 28.

Mr Mason, advised by boutique investment house Gresham Corporate Advisory, is believed to have rejected the offer two weeks later. But that was not before non-executive directors Leigh Clapham and Steve Vamos bought shares in the company on October 29. They sought and received approval from Mr Mason to buy the shares.

The timing is critical because the Australian Securities and Investments Commission has just concluded a two-month investigation of the share purchases, following accusations of inappropriate trading from investors. David Jones shareholders were concerned because Mr Clapham and Mr Vamos bought the shares three days before a better-than-expected quarterly sales update sent the stock soaring 15 per cent to $3.08. Mr Mason had approved the purchases but later apologised to shareholders.

ASIC, which examined emails between Mr Mason and the two non-executive directors as part of a two-month investigation into the purchases, this week said there was insufficient admissable evidence to pursue a case against Mr Vamos and Mr Clapham.

The Australian Financial Review has learnt that ASIC knew about the Myer merger proposal and the directors’ knowledge of it. ASIC became aware of the Myer proposal during investigations into share purchases by two David Jones’ non-executive directors late last year.

“ASIC has investigated the David Jones matter and has considered thoroughly all relevant information, including the conditional proposal, and decided to take no further action,” ASIC spokesman Matthew Abbott said.

However, it is believed ASIC could re-open its investigation if and when fresh information comes to light. Under David Jones’s own share trading policy, it is illegal for directors, officers or consultants to trade in the company’s shares if they possess unpublished price-sensitive information concerning the company.

David Jones’s decision not to disclose the offer is also likely to be scrutinised given the carve-out provisions under continuous disclosure laws allow companies to keep incomplete proposals confidential. Myer’s offer has been described by sources as “full and complete”.

Mr McClintock argued a union would strengthen the department store chains, which have been struggling in the face of an onslaught from fast-fashion chains, international online retailers and overseas department stores.

Mr McClintock highlighted major savings and proposed the merged company be based in Melbourne, where Myer has its headquarters.

Myer is thought to have offered roughly a 30 per cent premium to the David Jones share price, which traded at $2.75 in the week before the offer was received by Mr Mason. Myer proposed a scheme of arrangement, which would require approval from David Jones shareholders.

The combined group would have sales of $4.7 billion - before any store closures - and earnings before interest and tax around $350 million - before any savings.